Texas Real Estate Commission
Ethics MCE
Revised: October 2005
1
Real Estate Ethics
1. Canons of Professional Ethics
2. Agency Relationships
3. Offers
4. Disclosure
5. Advertising
6. Dispute Resolution
7. TREC Disciplinary Case Studies 2
Canons of Professional Ethics
1. Fidelity
2. Integrity
3. Competency
4. Consumer
Information
Form 1-1
5. Discriminatory
Practices
3
1-2
Canons of Professional Ethics
TREC Complaints
Reprimand
Suspension of license
Revocation of license
Fine
Probation
4
3
Canons of Professional Ethics
Association Complaints
Reprimand
Fine
Probation
Suspension of Membership
Revocation of Membership
5
3
Agency Relationships
• Fiduciary Duties
–Information about
Brokerage Services
and Agency
Disclosure
–Disclosure of Agency
Representation
6
5
7
5
Is Information About Brokerage
Services Form Required?
First Substantive Form
Licensee
Dialogue Required
is With
Listing Agent Owner (e.g., listing Yes
presentation)
Listing Agent Buyer who is No
represented
Listing Agent Buyer who is Yes
not represented
8
6
Is Information About Brokerage
Services Form Required?
First Substantive Form
Licensee Dialogue Required
is With
Buyer Agent Buyer (e.g., first Yes
meeting)
Buyer Agent Owner who is No
Represented
Buyer Agent Owner who is Yes
not represented
9
6
Is Information About Brokerage
Services Form Required?
First Substantive Form
Licensee Dialogue Required
is With
Subagent Buyer Yes
(e.g., first meeting)
Subagent Owner who is No
represented
10
6
Disclosure of Agency
Representation
A licensee representing a
party is required to disclose
such representation at the
first contact with another
party to the transaction or
another licensee who
represents another party to
the transaction.
11
6
Occupation Code Revisions
A Broker representing a party must:
1. Inform the party of material
information related to the transaction
(including the receipt of an offer);
2. Answer the party’s questions; and
3. Present any offer to or from the party.
12
7
Intermediary Brokerage
Relationship Services
When two brokers
from one firm
represent different
parties in a
transaction, the
brokerage is
considered the
intermediary.
13
7
If appointments are made:
1.Written
authorization
2.Intermediary
may not
appoint
himself/herself
3.Appointments to
to either party
both parties
14
8
If appointments are made:
4.Written notice that
appointments have
been made
5.Appointees keep
information
confidential
15
8
Agency Relationships
Broker - Intermediary
Associate A Associate B
(Seller) (Buyer)
16
9
Agency Relationships
Broker - Intermediary
Associate A
(Seller)
Seller Buyer
17
9
Agency Relationships
Broker - Intermediary
Associate A Associate B
(Seller) (Buyer)
Seller Buyer
18
10
Agency Relationships
Solo Practitioner –
Intermediary
Seller Buyer
19
10
Agency Relationships
Broker - Intermediary
Broker Associate B
(Seller) (Buyer)
20
11
Working with an Unrepresented Buyer
• Provide IABS
Form
• Sign Buyer
Representation
Agreement
• Possibility of
Intermediary
May Be
Recognized 21
11
Working with a Buyer
Showings – some may be firm’s listings
22
11
At the time the offer is made for an in-
house sale, remind the parties that the
broker is moving into intermediary status;
make any appointments.
In-house Sale
(Intermediary)
Cooperative Sale
(Single Agency)
23
11
Subagency
A Subagent is:
• a license holder who represents a principal
through cooperation with and consent of
the broker directly representing the
principal.
• not sponsored by or associated with the
broker directly representing the principal.
24
12
Subagency
Broker
Subagent
(Not sponsored/associated
with
Principal’s
Broker)
Principal
25
12
Diligence in Representation
When
representing a
buyer, complete a
written buyer
representation
agreement.
When representing a seller, complete a
written listing agreement.
26
13
Diligence
Begin diligence early
in the relationship.
Document and
disclose, take notes.
Use language that the
principal understands.
27
13
Diligence
Use a variety of
resources
Recommend
inspections
Identify information
sources
Address special use
requirements
28
13
Diligence
Educate the buyer or
seller about what to
expect throughout the
transaction.
Make the buyer or seller
is aware of his or her
responsibilities
29
13
Diligence
Disclose variable rate
commission agreements
Discuss if properties will
be excluded due to
commission structure
Do what you say you are
going to do.
30
13
Conflicts of Interest
Buying, selling or
leasing proper on
the licensee’s
account – disclose!
May not use expertise to the
disadvantage of the other party
Do not act in dual capacity as an
agent and undisclosed principal. 31
14
Conflicts of Interest
Use care when purchasing
property either currently
or recently listed
licensee’s broker.
A mortgage broker may not act as a
mortgage broker and a real estate
licensee in the same transaction without
knowledge and written consent from
the mortgage applicant.
32
14
Conflicts of Interest
If you receive a
commission, rebate or fee
from a service provider,
you must obtain your
principal’s consent.
You must also disclose to the person
being referred to the service provider
that you are receiving the
commission, rebate or fee. 33
14
Conflicts of Interest
The licensee may not
receive compensation
(money, trips, bonus
bucks) from more than
one party without the
knowledge and
consent of all parties
to the transaction.
34
14
Conflicts of Interest
The licensee may not
interfere with the
exclusive agency
relationship of another
broker.
If the licensee represents two buyers
who are making offers on the same
property, the licensee must disclose
this status to both buyers. 35
14
Conflicts Arising in Early
Termination of Agency
Agency may be
terminated at any time by
either party. If an agent
continues to offer
property for sale without
the consent of the
principal, it is a violation
of TRELA.
36
14
Conflicts Arising in Early
Termination of Agency
Upon receipt of a notice of
termination from a principal, the
agent should cease acting as the
principal’s agent:
•Remove signs
•Remove MLS listing
•Remove information from web
site 37
14
Conflicts Arising in Early
Termination of Agency
If a principal is subject to
an existing exclusive
agency relationship with
another broker, the licensee
should not provide any
services until confirmation
that the prior agency
relationship has been
terminated. 38
15
Submission and Presentation of
Offers
• Submit all offers
• Convey all known
information to
principal
• Deal fairly and
honestly
• Keep principal informed at all times
• Convey accurate information
39
17
Submission and Presentation of
Offers
If Broker is holding
the earnest money:
• Broker must deposit
earnest money in
trust account by
close of second
working day
• Broker will notify parties
immediately if check is dishonored 40
17
Broker’s Obligation
• In 2005, the Texas Legislature amended
Section 1101.557 of TRELA to clarify a
broker’s duty to negotiate.
A broker who exclusively represents a client
must, at a minimum:
– (1) answer the client’s questions if there are
any about the offer or issues related to the
offer;
– (2) keep the client informed of material
information; and
– (3) present offers to or from the parties. 41
17
Broker’s Obligation
• A listing broker may NOT instruct a buyer’s
broker to negotiate directly with the seller.
• However, the mere delivery of an offer by
one broker to a client of another broker
does not violate TRELA if the delivery is
made with the consent of the client’s
broker and the client’s broker receives a
copy of the offer.
42
17
Presentation of Multiple Offers
• All offers must be presented unless
instructed otherwise by the seller
• No offer has priority of presentation
• Broker should submit all offers
promptly
43
19
Seller’s Acceptance
• Seller has the option of accepting any one or
rejecting all offers (including full price)
Revocation of Offers/Counteroffers
• A buyer or seller may revoke anytime prior
to acceptance by other party
Effective Date
• Broker to fill in date of final acceptance –
the date the person receiving the offer
communicates acceptance
44
20
Suspension or Revocation of License
The commission may
suspend or revoke a
license or take
disciplinary action
against a licensee, if
a licensee fails to:
45
21
Suspension or Revocation of
License
• disclose to a potential
purchaser any latent
structural defect or any
other defect known to
the licensee;
• disclose to all parties
which party he or she
represents;
46
21
Suspension or Revocation of License
• disclose to all parties
that he or she is
receiving
compensation from
more than one party,
if applicable;
47
21
Suspension or Revocation of License
• disclose to principal
the licensee’s
acceptance, receipt
or charge of a
commission, rebate,
or direct profit on
expenditures made
for the principal;
48
21
Suspension or Revocation of License
• disclose that the
licensee is a principal in
a transaction, if
applicable;
• provide copies of any
document in a real
estate transaction upon
request to the person
who signed that
21
document; 49
Suspension or Revocation of
License
•advise a purchaser in
writing before closing a
transaction the
purchaser should have
an attorney review an
abstract of title or
obtain an owner’s
policy of title
insurance;
50
21
Suspension or Revocation of
License
•disclose the party the
licensee represents
at the time of first
contact with
another party to the
transaction (or that
party’s broker); and
51
21
Suspension or Revocation of
License
•provide IABS form at
first substantive
dialogue with a party
to the transaction
unless that party is
represented by
another licensee.
52
21
Deceptive Trade Practices
Act
•goods or services have
characters, uses or
benefits that they do not
•goods services are of a
particular standard,
quality or grade that
they are not 53
22
Deceptive Trade Practices Act
•an agreement confers
right, remedies or
obligations that it does not;
•salespersons,
representatives or agents
have authority to negotiate
the final terms of a
transaction when they do
not; 54
22
Deceptive Trade Practices Act
•a guarantee or
warranty conveys
rights or remedies that
it does not; and
•work or services have
been performed when
they have not.
55
22
Advertising
Proper Identification in Ads
Wording Acceptable
?
For sale, Mighty Fine Real Estate Yes
Brokerage Services, 555-5555
For Sale, Sam’s Realty, 555-5555 (The Yes
word “realty” identifies the entity as a
brokerage firm)
56
23
Advertising
Proper Identification in Ads
Wording Acceptable
?
For Sale, Muddy River Real Estate, 555-5555 No
For Sale, Good Management, 222-2222 No
For Sale, Callie Closer and Company, No
666-6666
57
23
Regulation Z
1. If an
advertisement
sets forth
information about
loan terms, those
terms must
actually be
available to a
qualified
borrower.
58
24
Regulation Z
2. If an
advertisement
states a rate of
finance charge, it
must use the
words “annual
percentage rate”
(APR).
59
24
Regulation Z
If any of these triggers appears, all
of the following must be disclosed in
the ad:
• amount of percentage
of the down payment
(e.g. $5,000 down or
10% down),
60
25
Regulation Z
• the terms of
repayment ($650
per month for 30
years),
61
25
Regulation Z
• the annual
percentage rate (the
interest rate),
62
25
Regulation Z
• whether the rate
may be increase at a
later date
63
25
Fair Housing Laws
The use of words
describing current or
potential residents, the
Racial and neighbors, or the
Ethnic Terms neighborhood in racial or
ethnic terms will create
liability under the Act.
64
26
Fair Housing Laws
Advertisements must not
Religious contain any explicit
Preference preferences or limitations
concerning religion.
65
26
Fair Housing Laws
Advertisements must
Gender contain no explicit
Preference reference for the gender
of the renter.
66
26
Fair Housing Laws
Advertisements must not
Handicapped discriminate or exclude
Persons handicapped persons.
67
26
Fair Housing Laws
Advertisements must not
contain limitations on the
number or age of children
or express a preference
Familial
for adults, couples or
Status single persons.
Exemptions: Housing
intended for persons 62 and
older; persons 55 and older 68
26
Internet Advertising
The real estate license
act requires a licensee
to identify the person
hosting the web site to
identify himself or
herself as a real estate
broker or salesperson.
This requirement
includes Internet sites.
69
27
Internet Advertising Checklist
•Review for misleading
statements
•Include name of firm or
broker
•Name of salesperson’s broker
•Identify license status of salesperson
70
27
Internet Advertising
Checklist
•Disclose licensee’s
ownership in property
•Have authority to publish
ad
•Correct price quote
•No contingencies for free services
•Conditions for any inducements
71
27
Dispute Resolution
Mediation is a forum,
before an impartial person,
which is designed to
facilitate communication
between parties and to
promote reconciliation,
settlement or
understanding.
72
29
Dispute Resolution
Arbitration is a forum
where parties and
counsel present their
positions before an
impartial party who
renders a specific
award.
73
29
TREC Disciplinary Case Studies
Failure to Disclose Suspension
• Facts
– License suspended for failure to make child support
payments.
– Pending transactions and listings transferred to
another licensed broker.
– Continued to act in an administrative or supervisory
position.
– Discussions concerning merits of offers and validity of
documents (without disclosure of suspension).
– Conduct causing other agents to believe he was
acting as a listing broker.
74
31
TREC Disciplinary Case Studies
Failure to Disclose Suspension
• Conclusion
– Created a false impression that license was still in
legal affect (broker acting without a license).
• violation of §1101.351.
• Disciplinary Action
– License revoked.
75
31-32
TREC Disciplinary Case Studies
Licensing the Alter Ego
• Facts
– Owner of 95% of corporation was a broker and
corporation was also licensed as a broker (but Owner
was not Designated Officer).
– Designated Officer did not intend to renew individual
license.
– Owner filed a license renewal for Designated Officer
(without Designated Officer's knowledge or consent).
– Owner then renewed the corporation’s broker license
(using same Designated Officer).
– Owner misrepresented the Designated Officer’s MCE.
76
32
TREC Disciplinary Case Studies
Licensing the Alter Ego
• Conclusion
– Owner fraudulently renewed the corporation’s license.
• violation of §1101.652(a)(2)
• Disciplinary Action
– Owner’s license revoked.
– Corporation's license revoked.
77
32-33
TREC Disciplinary Case Studies
Despite Good Intentions, It Was Commingling
• Facts
– Broker deposited $500 earnest money with title
company.
– Purchasers did not qualify for loan.
– Title company issued refund check.
– Broker modified endorsement on check.
– Broker deposited the check into business account (not
trust account).
– Broker did not sufficiently explain "arrangements" to
purchasers.
– Broker subsequently remitted the money to the
purchasers after several months.
– Broker genuinely believed he acted in purchasers’ best78
33 interests and with purchasers’ agreement.
TREC Disciplinary Case Studies
Despite Good Intentions, It Was Commingling
• Conclusion
– Broker did not act in bad faith.
– Broker commingled purchaser's funds with his own
funds.
– Broker failed to explain his actions and obtain the
informed consent of the purchasers..
• commingling funds - violation of §1101.652(b) (10)
• acting negligently - violation of §1101.652(b) (1)
• Disciplinary Action
– License suspended for 60 days.
79
33-34
TREC Disciplinary Case Studies
A Failure to Communicate
• Facts
– Salesperson (purchasers' agent) submitted offer by fax.
– Sellers’ counteroffer delivered by fax.
– Negotiations by fax resulted in legibility problems.
– Listing agent prepared clean copy of contract.
– Salesperson incorrectly believed a binding contract was
already in existence -- new contract not signed by
purchasers.
– Sellers accepted offer from different buyers.
– Broker paid $750 to purchasers to atone for mistake.
80
34-35
TREC Disciplinary Case Studies
A Failure to Communicate
• Conclusion
– Sponsoring broker responsible for actions of
salesperson.
– Sponsoring broker careless in failing to ascertain the
facts before advising salesperson how to act.
• acting negligently - violation of §1101.652(b) (1)
• Disciplinary Action
– Broker was reprimanded.
– Salesperson: (i) reprimanded, (ii) paid administrative
penalty, and (iii) took additional education in the law of
contracts.
81
35
TREC Disciplinary Case Studies
No Refund, No License
• Facts
– First transaction fell through -- title company issued
$1,900 refund check.
– Broker forged endorsement and deposited the funds
into his business operating account (without the
knowledge or consent of the buyer).
– Broker purchased a $1,000 money order as earnest
money in buyer’s offer to purchase a HUD home.
– HUD home purchase failed to close.
– Buyer demanded the return of all monies held by
broker.
– Broker made only partial refund and did not account
for remaining funds. 82
35-36
TREC Disciplinary Case Studies
No Refund, No License
• Conclusion
– Broker did not hold funds in a trust account.
– Broker did not account for funds to the owner of the
funds.
• commingling funds - violation of §1101.652(b) (10)
• Disciplinary Action
– License revoked.
83
36
TREC Disciplinary Case Studies
Dad Left Holding the Bag
• Facts
– Broker assumed father’s business but did not give notice
to the owners of managed properties or the tenants.
– Broker collected rental funds and security deposits from
tenants and failed to pay the entire proceeds to the
owners as required.
– Broker used this money for his own purposes (without
authorization from the owners)
– Broker failed to remit funds due to owners upon demand.
– Broker vacated office with no forwarding address.
– Broker’s father intervened and remitted the funds due to
the owners.
84
36-37
TREC Disciplinary Case Studies
Dad Left Holding the Bag
• Conclusion
– Broker commingled funds belonging to others with his
own funds
• violation of §1101.652(b) (10).
• Disciplinary Action
– License revoked (father’s assumption of responsibility
did not atone for the mishandling of money belonging
to others).
85
37
TREC Disciplinary Case Studies
Bad Memory or Deception?
• Facts
– Broker listed property and entered into MLS.
– Property was sold and entered into MLS.
– Broker (also a licensed appraiser) performed an
appraisal of the property.
– Broker stated the property had not been sold in the
previous 12 months (ignoring the sale of his listing)
– Broker failed to fully cooperate with TREC
investigation.
86
37
TREC Disciplinary Case Studies
Bad Memory or Deception?
• Conclusion
– Broker either: (i) made a deliberate deception, or (ii)
was negligent.
• dishonest dealings - violation of §1101.652(b) (2)
• negligence - violation of §1101.652(b) (1)
– Broker failed to provide information and documents
requested by TREC in the course of an investigation
• violations of §1101.652(a)(5) and §1101.652(a)(6).
• Disciplinary Action
– License revoked.
87
38